New session will bring new efforts at Illinois pension reform

Sunday

SPRINGFIELD — Illinois lawmakers are gearing up to start another spring session that will include more attempts to address an issue that has remained stubbornly elusive so far.

What can the state do to rein in the cost of public employee pensions and try to address the $129 billion debt faced by the five state-funded pension systems?

A number of ideas are floating around the General Assembly, from an idea to issue billions of dollars in bonds to pay off the existing debt at a lower interest rate, to an idea that would give some employees a cash incentive to accept smaller future increases in their retirement benefits after they retire.

As always, lawmakers will have to consider any changes with an eye to what the courts will find acceptable, given the pension protection clause in the state Constitution. There’s also the fact this is an election year when the Executive Mansion is at stake along with dozens of legislative races.

“Can you get anything done in an election year?” said Rep. Robert Martwick, D-Chicago, chairman of the House Personnel and Pensions Committee. “Maybe that’s the problem.”

The other problem is that the state Supreme Court has ruled that the state cannot diminish benefits for people once they’ve joined one of the pension systems.

That means Illinois can’t follow the lead of Ohio, for instance, where that state’s largest public pension system recommended cutting benefits to cope with its own huge pension debt. The system recommended cutting the automatic 3 percent increases in pension benefits awarded to retirees each year.

People in the Tier 1 system in Illinois also are entitled to 3 percent raises in their pension benefits each year and unlike Ohio, Illinois compounds those increases. Those automatic raises are a major factor in ongoing cost increases for the Illinois pension systems.

Martwick wants to pursue a bill designed to encourage people to give up the 3 percent raises and opt for the smaller annual raises that are awarded to people in the Tier 2 plan. That plan awards annual raises of 3 percent or half the rate of inflation, whichever is less.

Martwick’s idea is to have pension systems compute how much those annual raises would amount to over the estimated life span of a retiree. A rough estimate would then be made for the same person if they were in the Tier 2 plan and getting smaller annual increases. The person would then be offered a portion of the difference as an up-front cash payment if the person agreed to give up the Tier 1 annual increase and accept the Tier 2 version.

“It takes the biggest cost driver of the pensions off the table,” Martwick said. “It puts people in the much more financial manageable Tier 2 (increase).”

Martwick said he’s asked the pension systems to compute potential savings from the idea, but has not received the results yet.

Another idea that will at least get some discussion is a massive bond issue that would be applied to the state’s pension debt. The idea is the money could be borrowed at a lower interest rate than the state is essentially paying on its $129 billion pension debt.

Martwick’s committee was scheduled to hold a hearing on the idea this week, but the House canceled its session days for this week. The hearing will be rescheduled.

The idea is being pushed by the State Universities Annuitants Association. A fact sheet from the association says that $107 billion in bonds would be sold and repaid over 27 years. It contends the state would save $103 billion by 2045 over the payment plan currently in effect.

Martwick acknowledged “this would be the largest bond sale in the history of the world” and said additional hearings would have to be scheduled with bond experts to see if such a sale is feasible. But he also said the idea is worth exploring.

“I think the ideas and concepts make sense,” he said. “We are going to pay our pensions one way or another. The only question is how does the rising pension obligation affect our ability to fund all of the other things we care about.”

Lawmakers could also again consider some ideas that have been floated before, but never been approved. One is the plan advanced by Senate President John Cullerton, D-Chicago, that has workers choose between having future raises count toward their pensions or continue receiving 3 percent compounded annual increases in pension benefits after retirement.

Another option is to restructure the existing pension debt and take more time to pay it off. The plan would ease pressure on the annual payments the state has to make to the pension plans.

The idea has been promoted by the Center for Tax and Budget Accountability among others. CTBA executive director Ralph Martire said the plan would set a slightly lower target for the pension funds to be considered adequately funded, although still meeting acceptable standards. The problem is the date for reaching those targets is extended.

“You do have pressure created by editorial boards and others who say if you don’t follow the current (payment plan) and you get funded to a lesser amount, aren’t you kicking the can down the road,” Martire said. “No politician wants to be accused of kicking the can down the road. That attack has a lot of political value and it really makes elected officials nervous.”

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